Glossary

Public Market Equivalent (PME)

Also known as: PME Analysis, Kaplan-Schoar PME, PME

A benchmarking method that evaluates a closed-end fund's performance against a hypothetical parallel investment in a public index by investing and redeeming the same dollar amounts on the same dates the fund actually called and distributed capital.

A simple comparison of a fund's IRR against a public index's buy-and-hold return over the same period is invalid because the fund's cash flows are drawn down and returned on the manager's schedule rather than invested as a single lump sum, so PME instead simulates investing each capital call into the chosen public benchmark (commonly a public REIT index for real estate funds) and redeeming an equivalent amount from that simulated position whenever the fund makes a distribution, isolating whether the fund's actual return, given its actual cash flow timing, beat what the same dollars would have earned in the public market. Results are typically expressed as a PME ratio (a value above 1.0 indicating outperformance of the public benchmark on a cash-flow-timing-adjusted basis) and have become a standard supplemental disclosure institutional limited partners request alongside IRR and multiple-based metrics precisely because it answers the practical allocation question of whether private fund exposure was worth its illiquidity relative to a comparable public securities alternative.